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Human Resource

Accounting

Done By,
AJAY AS

Contents

Introduction
Objectives of HRA
Importance of HRA
Limitations
Cost of Human Resources
Measurements in HRA
Cost Approach

Introduction

Process of identifying and measuring data about


human resources and communicating this
information to interested parties
Quantification of the economic value of the
people in an organization
Measurement and reporting of the cost and value
of people in organizational resources : Flamholtz
Art of valuing, recording and presenting
systematically the worth of human resources in
the books of account of an organization

Contd

1. Valuation of human resources


2. Recording the valuation in thebooks of
account
3. Disclosure of the information in the financial
statements of the business

Objectives

Improve management by analyzing


investment in HR
Consider people as its asset
Attract and retain qualified people
Profile the organization in financial terms
To have an analysis of the human asset
To aid in the development of management
principles, and proper decision making for the
future

Importance of HRA

Furnishes cost/value information for making management decisions about


acquiring, allocating, developing, and maintaining human resources in
order to attain cost-effectiveness
Helps the management in the employment, locating and utilization of
human resources

Helps in deciding the transfers, promotion, training and retrenchment of


human resources
Assists in evaluating the expenditure incurred for imparting further
education and training in employees in terms of the benefits derived by
thefirm

Contd

Management tool designed to assist senior management in


understanding the long term cost and benefit implications
of their HR decisions
Helps in identifying the causes of high labour turnover at
various levels and taking preventive measures to contain it
Helps in identifying improper or under-utilization of physical
assets or human resource orboth
Provides valuable information for persons interested in
making long term investment in the firm

Limitations

No specific procedure for finding cost and


value of human resources of an organization
Form and manner of including HRA value in
the financial statement is not clear
Employee with a comparatively low value may
feel discouraged
Tax laws do not recognize human beings as
assets

Training
(Development) cost
-Formal Training Cost
-On the Job Training Cost
-Special Training
-Development Programmes

Welfare Cost
-Medical Expenditure
-Canteen Expenditure
-Specific and General
Allowances
-Children Welfare Expenses
-Other Welfare Expenditure

Other Costs

Acquisition cost
-Recruitment Cost
-Selection Cost
-Placement Cost
-Campus Interview Cost

Cost of
Human
Resourc
es

-Safety Expenditure
-Ex-gratia
-Multi-trade incentives
-Rewarding
Suggestions

Measurements in HRA

Cost based approaches:

Historical Cost
Replacement Cost
Opportunity Cost
Standard Cost

Monetary value based approaches:


The Lev and Schwartz Model (Present value of future earnings method)
The Eric Flamholtz Model (Reward Valuation method)
Morse Model (Net Benefit Model)

Non- monetary value -based approaches:

Likert Model
The Flamholtz Model
Ogan Model (Certainity Equivalent Net Benefit Model)

COST APPROACH

Cost
It is a sacrifice incurred to obtain some
anticipated benefit or service
Two portions :

Expense
Asset

Types of Cost

Historical cost
Sacrifice that was made to acquire and develop the
resource
Opportunity cost
Money to be spent on HR was spent on something
else
Replacement cost
Cost incurred in the replacement of present employees

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